Abandonment
A disclaimer of ownership by the trustee or debtor in property deemed burdensome or inconsequential. Once property has been "abandoned," it is no longer the property of the estate, and creditors can seek to recover their money.

Adjustable Rate
An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly.

Amortization
A repayment method in which the amount you borrow is repaid gradually though regular monthly payments of principal and interest. During the first few years, most of each payment is applied toward the interest owed. During the final years of the loan, payment amounts are applied almost exclusively to the remaining principal.

Amortization Term
The amount of time required to amortize the loan. The amortization term is expressed as a number of months. For example, for a 15-year fixed-rate mortgage, the amortization term is 180 months.

Annual Percentage Rate (APR)
The cost of credit on a yearly basis, expressed as a percentage. Required to be disclosed by the lender under the federal Truth in Lending Act, Regulation Z. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note. Does not include title insurance, appraisal, and credit report.

Application Fee
Fees that are paid upon application. An application fee may frequently include charges for property appraisal ($200-$400) and a credit report ($30-50). See also Glossary of Closing Costs.

Appraisal
A fee charged by an appraiser to render an opinion of market value as of a specific date. Required by most lenders to obtain a loan.

Appraisal Report
A written report by an appraiser containing an opinion as to the value of a property and the reasoning leading to that opinion.

Balloon loan
A loan in which the payments aren't set up to repay the loan in full by the end of the term. At the end comes the balloon payment -- one that is larger than the other, periodic payments and pays off the remaining principal.

Balloon Payment
A lump sum payment for the unpaid balance of the loan.

Bankruptcy
A legal proceeding that protects a debtor from legal action by some creditors. There are two basic ways of filing for personal bankruptcy. A Chapter 7 bankruptcy declaration gets rid of all debts (except some taxes and maybe alimony payments); Chapter 13 allows a borrower with a steady income to pay off bills over a 36- to 60-month period.

Basis point
One one-hundredth of a percentage point. The difference between 7.00 percent and 7.01 percent is one basis point.

Blanket mortgage
A loan secured by more than one property. Usually refers to commercial property.

Cap
The maximum allowable increase, for either payment or interest rate, for a specified amount of time on an adjustable rate mortgage. See Adjustable Rate Mortgages for a complete guide.

Cash Advance Loan
A loan made as a cash advance generally until ones next payday.

Cash Out
Receiving money back when refinancing your present mortgage.

Ceiling
The maximum allowable interest rate over the life of the loan of an adjustable rate mortgage.

Certificate of Title
A statement provided by an abstract company, title company, or attorney stating that the title of real estate is legally held by the current owner.

Clear Title
A title that is free of liens or legal questions as to ownership of the property.

Closing
The time and place at which all documents for your loan are signed, dated and notarized.

Closing Costs
Any fees paid by the borrowers or sellers during the closing of the mortgage loan. This normally includes an origination fee, discount points, attorney's fees, title insurance, survey, and any items which must be prepaid, such as taxes and insurance escrow payments.

Collateral
An asset that guarantees the repayment of a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract.

Combined Loan to Value
The relationship between the unpaid principal balances of all the mortgages on a property and the property's appraised value.

Credit History
A record of an individual's open and fully repaid debts. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner.

Credit Limit
The maximum amount that you can borrow under a home equity plan.

Credit Report
A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.

Credit Repository
An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit.

Debt
Amount owed to another.

Debt Service
The total amount of credit card, auto, mortgage or other debt upon which you must pay.

Debt-to-Income Ratio
The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her gross monthly income.

Deed of Trust
Used in many western states, the agreement used to pledge your home or other real estate as security for a loan. Similar to a mortgage.

Default
Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.

Delinquency
Failure to make mortgage payments when mortgage payments are due.

Discount Points (or Points)
The amount paid either to maintain or lower the interest rate charged. Each point is equal to one percent (1%) of the loan amount (i.e., two points on a $100,000 mortgage would equal $2,000).

Down Payment
The difference between the purchase price and that portion of the purchase price being financed. Most lenders require the down payment to be paid from the buyer's own funds. Gifts from related parties are sometimes acceptable, and must be disclosed to the lender.

Due on Sale
A clause in a mortgage agreement providing that, if the mortgagor (the borrower) sells, transfers, or, in some instances, encumbers the property, the mortgagee (the lender) has the right to demand the outstanding balance in full.

Effective Interest Rate
The cost of credit on a yearly basis expressed as a percentage. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note. Useful in comparing loan programs with different rates and points.

Encumbrance
A claim against a property by another party which usually affects the ability to transfer ownership of the property.

Equal Credit Opportunity Act (ECOA)
A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.

Equity
The difference between the fair market value (appraised value) of your home and your outstanding mortgage balance.

Fair Credit Reporting Act
A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one's credit record.

Fair Debt Collection Practices Act
A federal law that prohibits certain methods of debt collection, such as harassment.

Fannie Mae
The largest mortgage investor, a government-sponsored enterprise that buys mortgages from lenders, bundles them into investments and sells them on the secondary mortgage market. Formerly known as the Federal National Mortgage Association.

Federal Trade Commission
A federal agency that enforces antitrust and consumer protection laws, including the Truth-in-Lending Act, Fair Credit Billing Act, Fair Credit Reporting Act, Equal Credit Opportunity Act, Fair Debt Collection Practices Act and Home Ownership and Equity Protection Act.

FHA loan
A residential mortgage from an approved lender and insured by the Federal Housing Administration. The down payment on an FHA loan usually is less than that for a conventional mortgage. The FHA does not lend money, but nominates approved lenders.

First Mortgage
A mortgage which is in first lien position, taking priority over all other liens (which are financial encumbrances).

Fixed Rate
An interest rate which is fixed for the term of the loan. Payments as well are fixed at one amount.

Flood Insurance
Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.

Good Faith Estimate
A written estimate of closing costs which a lender must provide you within three days of submitting an application.
Grace Period
A period of time during which a loan payment may be paid after its due date but not incur a late penalty. Such late payments may be reported on your credit report.

Gross Income
For qualifying purposes, the income of the borrower before taxes or expenses are deducted.

Guaranteed mortgage
A home loan guaranteed by a government agency or other third party.

Hazard Insurance
A contract between purchaser and an insurer, to compensate the insured for loss of property due to hazards (fire, hail damage, etc.), for a premium.

Home Equity Line of Credit
A loan providing you with the ability to borrow funds at the time and in the amount you choose, up to a maximum credit limit for which you have qualified. Repayment is secured by the equity in your home. Simple interest (interest-only payments on the outstanding balance) is usually tax-deductible. Often used for home improvements, major purchases or expenses, and debt consolidation.

Home Equity Loan
A fixed or adjustable rate loan obtained for a variety of purposes, secured by the equity in your home. Interest paid is usually tax -deductible. Often used for home improvement or freeing of equity for investment in other real estate or investment. Recommended by many to replace or substitute for consumer loans whose interest is not tax-deductible, such as auto or boat loans, credit card debt, medical debt, and education loans.

Home Ownership and Equity Protection Act
A federal law designed to discourage predatory lending in mortgages and home equity loans.

Household income
The total income of all members of a household. An important yardstick used by lenders evaluating applications for joint credit.

Housing expense ratio
The percentage of monthly before-tax income that goes toward a house payment. The rule of thumb is that it shouldn't exceed 28. Also known as the front ratio.

HUD I Settlement Statement
A form utilized at loan closing to itemize the costs associated with purchasing the home. Used universally by mandate of HUD, the Department of Housing and Urban Development.

Independent bank
bank that is locally owned and operated, and not associated with a bank holding company. Also referred to as a community bank.

Index
A number, usually a percentage, upon which future interest rates for adjustable rate mortgages are based. Common indexes include the Cost of Funds for the Eleventh Federal District of banks or the average rate of a one year Government Treasury Security.

Interest Rate
The periodic charge, expressed as a percentage, for use of credit.

Interest rate cap
A limit on how much a borrower¡¯s percentage rate can increase or decrease at rate adjustment periods and over the life of the loan.

Interest-only loan
An advance of money in which the installments pay only the interest that accumulates on the loan balance. The loan balance does not decrease with the payments. Usually the interest-only payments last for a limited period, after which payments rise and the borrower begins paying principal in addition to interest.

Joint credit
Issued to a couple based on both of their assets, incomes and credit reports. It generally results in a higher credit limit, but makes both parties responsible for repaying the debt.

Joint liability
The responsibility of two or more people to repay a debt.

Late charge
A fee imposed on a borrower for not paying on time.
Lease-purchase mortgage
A financing option that allows a potential homebuyer to lease a property with the option to buy. Often constructed so the monthly rent payment covers the owner's first mortgage payment, plus an additional amount as a savings deposit to accumulate cash for a down payment. A seller may agree to a lease-purchase option if the housing market is saturated and the seller is having difficult selling the property.

Lender
The bank, mortgage company, or mortgage broker offering the loan.

Lien
The right to take and hold or sell the property of a debtor as a security or payment for a debt.

Line of credit
A commitment by a financial institution to lend up to a specified maximum amount to a customer during a specified period of time.

Loan application
A document in which a prospective borrower details his or her financial situation to qualify for a loan.

Loan application fee
A sum charged by a lender for accepting a document in which a prospective borrower details his or her financial situation to qualify for a loan.

Loan origination
The process by which a mortgage lender obtains a mortgage secured by real property.

Margin
An amount, usually a percentage, which is added to the index to determine the interest rate for adjustable rate mortgages.
Market value
The price at which a given property or product sells between a willing, unpressured buyer and seller who know all the pertinent facts about the property or product.

Minimum Payment
The minimum amount that you must pay, usually monthly, on a home equity loan or line of credit. In some plans, the minimum payment may be "interest only,(simple interest). In other plans, the minimum payment may include principal and interest (amortized).

Monthly periodic rate
The interest rate factor used to calculate the interest charges on a monthly basis. The factor equals the yearly rate divided by 12. See periodic rate.

Mortgage
A legal document that pledges to the lender as security for payment of a debt.

Mortgage insurance
Also known as MI or PMI (for private mortgage insurance). A policy that protects the lender by paying the costs of foreclosing on a house if the borrower stops paying the loan. Although mortgage insurance protects the lender, it is paid monthly by the borrower. Mortgage insurance usually is required if the down payment is less than 20 percent of the sale price.

Mortgage Loan
A loan which utilizes real estate as security or collateral to provide for repayment should you default on the terms of your loan. The mortgage or Deed of Trust is your agreement to pledge your home or other real estate as security.

Mortgage
One who lends for the purchase of property, using the property as collateral to assure payment.

Mortgagor
The borrower in a mortgage loan transaction.

Negative amortization
A gradual increase in mortgage debt that happens when the monthly payment does not cover the entire principal and interest due. The shortfall is added to the remaining balance to create "negative" amortization.
Net income
The amount left after taxes have been paid.

Net worth
The total value of all assets, such as house, car, furniture and investments, minus all debts, such as mortgages and credit card bills.

No cash-out refinance
A home loan for a lower interest rate in an amount that does not exceed closing costs and the original mortgage¡¯s outstanding principal.

No-doc loan
Short for "no-documentation loan." A mortgage in which the applicant provides a minimum of information -- name, address, Social Security number (so credit reports can be pulled), and contact information for an employer, if there is one. The underwriter decides on the loan based on the applicant's credit history, the appraised value of the house and size of down payment.

No-documentation loan
A mortgage in which the applicant provides a minimum of information -- name, address, Social Security number (so credit reports can be pulled), and contact information for an employer, if there is one. The underwriter decides on the loan based on the applicant's credit history, the appraised value of the house and size of down payment.

Note
A written agreement containing a promise of the signer to pay to a named person, or order, or bearer, a definite sum of money at a specified date or on demand.

One-year adjustable
Mortgage whose annual rate changes yearly. The rate is usually based on movements of a published index plus a specified margin, chosen by the lender.

Origination fee
The fee a lender charges to process a loan. It usually includes the cost to prepare loan documents, check a borrower's credit history, inspect the property and sometimes conduct an appraisal.

Owner financing
A transaction in which the seller lends all or part of the money to the buyer.

Payday Loan
A cash advance loan made generally until ones next payday.
Payment cap
A contractual limit on the size of the monthly payment of an adjustable-rate mortgage or other variable rate loan.

Personal loan
A personal loan is a loan from a lender that is not secured by any property. Rates tend to be similar to those of credit cards, which are another type of unsecured loan. The personal loan rates quoted on Bankrate are for a $3,000 fixed-rate loan and a term of two years.

PITI
Principal, interest, taxes and insurance, which comprise your monthly mortgage payment.

PMI
Private mortgage insurance. A policy that protects the lender by paying the costs of foreclosing on a house if the borrower stops paying the loan. Although PMI protects the lender, it is paid monthly by the borrower. Private mortgage insurance usually is required if the down payment is less than 20 percent of the sale price.

Point
A point equals 1 percent of a mortgage loan. Some lenders charge "origination points" to cover expenses of making a loan. Some borrowers pay "discount points" to reduce the loan's interest rate.

Pre-approval letter
A document from a lender or broker, estimating how much a potential home-buyer could borrow, based on current interest rates and a preliminary look at credit history.

Prepaid interest
Interest that a borrower pays before it is due, usually to save taxes.

Prepayment penalty
A lender¡¯s charge to the borrower for paying off the loan before the end of the term.

Pre-qualification
A non-binding evaluation of a prospective borrower¡¯s finances to determine how much he or she can borrow and on what terms.

Prime rate
The interest rate a bank charges its best or "prime" customers. Each bank will quote a prime lending rate. Many institutions quote prime rates established by large money center commercial banks. There is also a prime rate average listed in the Wall Street Journal that is an average of the largest commercial banks. The rate given to consumers on their loans is often based as the prime rate plus a certain percentage, which represents the lender's assessment of the risk in lending, plus its profit margin.

Principal
1. The amount of money borrowed. 2. The amount of money owed, excluding interest. 3. The client of a real-estate agent.

Qualifying Ratios
Comparisons of a borrower's debts and gross monthly income
Rate
The annual rate of interest on a loan, expressed as a percentage of 100.

Rate index
A table of yields or interest rates being paid on debt (such as Treasury notes or bank deposits) that is used to determine interest-rate changes for adjustable-rate mortgages and other variable-rate loans.

Rate lock
A lender's guarantee that the mortgage rate quoted will not change for a specific period. The borrower wants the lock to stay in effect until closing.

Rate-improvement mortgage
A home loan that allows the borrower a one-time interest rate cut without paying refinancing charges.

Refinancing
The repayment of a mortgage with another mortgage. Homeowners typically refinance to take advantage of lower interest rates or to transform equity into cash.

REIT
Short for Real Estate Investment Trust. A trust that invests primarily in real estate and mortgages and passes income, losses and other tax items to its investors.

Right to Rescission
The legal right to void or cancel your mortgage contract in such a way as to treat the contract as if it never existed. Right of rescission is not applicable to mortgages made to purchase a home, but may be applicable to other mortgages, such as home equity loans.

Second mortgage
A loan using a home's equity as collateral and which is subordinate to the original mortgage (i.e., the first mortgage has priority before all others).

Secured debt
A debt that is secured by a lien on debtor's property that may be taken by the creditor in case of nonpayment by the debtor. A common example is a mortgage loan.

Security Interest
An interest that a lender takes in the borrower's property to assure repayment of a debt.

Servicing a Loan
The ongoing process of collecting your monthly mortgage payment, including accounting for and payment of your yearly tax and/or homeowners insurance bills.

Simple interest
Interest computed only on the principal balance, without compounding.

Subprime mortgage
A mortgage granted to a borrower considered subprime, that is, a person with a less-than-perfect credit report. Subprime borrowers have either missed payments on a debt or have been late with payments. Lenders charge a higher interest rate to compensate for potential losses from customers who may run into trouble or default.

Tax lien
A claim, or obstacle, to the sale of property because of unpaid taxes. The property's title can't be transferred until liens are paid.

Term
The time to the maturity of a loan or deposit, expressed in months or years.

Title
The written evidence that proves the right of ownership of a specific piece of property.

Title Insurance
Protection for lenders or homeowners against financial loss resulting from legal defects in the title.

Title Search
An investigation into the history of ownership of a property to check for liens, unpaid claims, restrictions or problems, to prove that the seller can transfer free and clear ownership.

Total Debt Ratio
Monthly debt and housing payments, divided by gross monthly income, to prove that the seller can transfer free and clear ownership.

Truth-In-Lending Act
A federal law requiring a disclosure of credit terms using a standard format. This is intended to facilitate comparisons between the lending terms of different financial institutions.

Underwriting
The process of verifying data and approving a loan.

Unearned income
Income such as interest, dividends, capital gains or rents, as opposed to earned income, such as wages, tips and salaries.

Unsecured loan
An advance of money that is not secured by collateral.

Upside-down
A position that consumers find themselves in when the outstanding balance of a loan is higher than the current fair market value of the property purchased with the loan. In automobiles, it is most common in the early years of a lease or loan, when the car is depreciating rapidly but the balance owed remains very high.

Usurious rate
A rate based on unnecessarily or unlawfully high interest; act or practice of lending money at high interest; sometimes intangible property taxes are applied to income from usurious rates.

Variable Rate
An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly. See Adjustable Rate Mortgages for a complete guide.

Verification of employment
Confirmation that a loan applicant is telling the truth about where he or she works and how much he or she makes.

Waiver
The intentional and voluntary giving up of rights or claims.

Wall Street Journal prime rate
The fluctuating prime rate published in the Wall Street Journal, which surveys several banks to arrive at its number.

WSJ Prime Rate
The initials stand for the Wall Street Journal, which surveys large banks and publishes the consensus prime rate. It's the most widely quoted measure of the prime rate, which is the rate at which banks will lend money to their most-favored customers. The prime rate will move up or down in lock step with changes by the Federal Reserve Board. For more, see prime rate.

Zoning
Areas within a local government's jurisdiction in which certain types of land uses are allowed. For example, a zoning ordinance might permit houses but not factories in a neighborhood.

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